- The potential threat of Amazon getting into the pharmacy business has been on the minds of healthcare companies.
- Drugmakers, wholesalers, and pharmacy benefits managers have all addressed the question in their latest quarterly earnings calls.
- The members of the pharmaceutical supply chain seem to be taking Amazon seriously, weighing the different ways the tech giant would affect their businesses.
Pharmaceutical companies are fielding a lot of questions these days about Amazon’s potential entry into the pharmacy business.
Whether Amazon does enter the business, and if it does, what that business will look like, remains to be seen. There are a lot of people involved in the process of delivering and paying for your prescription, from the drugmakers, to insurers, to the pharmacy.
There are a number of ways Amazon could get into the pharmacy business. For one, it could distribute drugs to people who aren’t using insurance, at a cash price. But if Amazon wants to serve people who do have insurance, that will require extra legwork.
ZS principal Pratap Khedkar told Business Insider that ultimately, should Amazon decide to get into the pharmacy business, it will have to acquire a pharmacy benefits manager, which negotiate discounts to drug prices for health plans. “Things are so arcane that they will have to buy something and fix it instead of build it from scratch,” he said.
Here’s how the different members of the supply chain are thinking about Amazon, according to recent quarterly earnings calls.
Ian Read, CEO of the pharmaceutical company Pfizer, looked at a potential entrance conditionally, depending on how Amazon approaches the business.
“Any system of distribution, you can cut costs and have a wide availability of products to patients is something that the whole industry will be interested in,” Read said on Tuesday’s earnings call. That changes if Amazon decides to get into the business via PBMs calling it “more of a difficult strategic proposal.”
Allergan CEO Brent Saunders said the talk of disruption in the drug distribution ecosystem could benefit the overall healthcare system.
“My sense is that the whole ecosystem is ripe for disruption to figure out a way to do it more efficiently, to do it more conveniently for patients to better manage compliance and persistence,” Saunders said in an earnings call on Wednesday. “I do think that just like science is disrupted with gene therapy or novel treatments, I think the drug distribution channel also should be disrupted with improvements based on technology or effiency.”
Wholesalers, which are in charge of shipping drugs to pharmacies and hospitals, could face direct competition from Amazon if it chooses to distribute prescription drugs. But wholesalers like McKesson don’t seem to be sweating it just yet.
“To some extent, we were Amazon before it was cool to be Amazon,” McKesson CEO John Hammergren said in the company’s October earnings call. That’s because, he argued, McKesson is mainly based on online orders, much like what Amazon could do if it started supplying prescriptions. “But if you actually think about what’s behind the scenes in terms of us taking credit risk, in terms of us processing invoices and processing returns, and then processing pricing on a regular basis, it’s quite significant and more nuanced, perhaps, than it would appear on the surface.”
Pharmacy benefits managers
PBMs, could also face direct competition from a company like Amazon which might strike up its own deals.
“First of all let me say, people have always worried about foxes and henhouses, and I think our henhouse is pretty good,” Express Scripts CEO TimWentworth said on an October earnings call. He recalled a time back in the mid 2000s when Walmart launched its $US4 generic list that people thought would be the end of the PBM business model. “And of course what it was instead was another opportunity for PBMs to create competition and drive down costs and drive generic expansion for their clients,” Wentworth said.
Should Amazon want to capture the part of the population paying for their prescriptions with cash (that is, those without insurance or those who are underinsured), Wentworth said he’d be willing to work with Amazon. “We certainly see that as something where if they wanted to move into a space, we could be a very natural collaborator,” he said.
That would be different if Amazon decided to get into the PBM business, which seems like it might be a necessity.
“If they choose to become a PBM, then we’d have a competitor on our hands and we’d have to deal with it, but again, our independent focused model and the value we have shown clients, I feel very confident we’ll stand well against an entry in the PBM space be it Amazon or anybody,” Wentworth said.